There comes a time for every hedge fund manager when he simply must drop a stock. Not every investment makes money, and the fund manager’s prime directive is to bring in returns for his investors.

This is where Izzy Englander can be trusted. The founder of Millennium Management got his professional start in trading in 1977, and established his hedge fund in 1989 with an initial investment of $35 million. After a rough start in the business, Millennium has been wildly successful and now holds over $37 billion in assets under management.

So, when Izzy Englander’s hedge sells off a major holding, pay attention.

The most recent 13F filing shows that Millennium sold 64,650 shares of Amazon (AMZN) in the last quarter, along with 1,871,684 shares of Nio (NIO), a Chinese electric car company. Amazon is a household name; Nio, not so much. Let’s dive into these two stocks, and find out why Millennium sold down its positions.

I’ve Got an Electric Car to Sell You in China

Once billed as “China’s Tesla,” Nio (NIO) is one of nearly 500 electric car companies in China, but more importantly, one of the very few that trades publicly. The company follows an odd business model – while it designs and markets its own vehicles, production is outsourced to state-owned factories. It’s a common practice in China, but it does cut into profit margins. That margin cut is probably the least of Nio’s problems.

Higher up on the problem list are the regular losses the company continues to report. This is considered normal for small start-ups, but it still means that investors will have to wait a while to see a return. And that while may turn out pretty long; while analysts are predicting 130% top line growth this year, and 90% growth next year, the analysts don’t expect to see positive earnings until mid-2021 at the earliest. That could, perhaps, be swallowed – but Nio also carries $1.35 billion in debt with only $1.12 billion cash in the bank.

And even that might not be the worst of Nio’s problems. This past July, the company delivered only 837 cars. The poor production came after the company had to recall nearly 5,000 of its ES8 SUVs, an action prompted by multiple battery fire incidents.

On the positive side, Nio took the initiative in addressing the problem, and solved the battery issues faster than anticipated. Analysts now expect the company to deliver between 2,000 and 2,500 vehicles this month. That’s all good, but July was a warning – no car company can simply shrug off a month like that.

That said, there are several factors unique to Nio’s Chinese environment. China’s economy is growing, but the rate of growth is slowing, and structural problems in the debt and real estate sectors do not bode well. There is real demand in China for electric cars, but with hundreds of companies in the marketplace the competition is cutthroat. Nio holds only 2% market share.

With all of this, it’s no wonder that Millennium sold 97% of its NIO shares. Still, at least one Wall Street analyst, Bin Wang from Credit Suisse, sees NIO as a buying opportunity. Citing a recent investment in the company by E-Town Capital, Wang writes, “The key catalyst going forward is the successful finalization of E-Town's investment of Rmb10 bn in 'NIO China' to relieve investors' cash flow concerns. We expect management to provide some guidance on this in the upcoming 2Q19 results conference call in end-August.”

A Successful Company with Headwinds Brewing

Amazon (AMZN) presents a very different investing landscape than NIO, and Millennium treated the share sell-off differently, too. For starters, the hedge fun only sold 38% of its holdings; Millennium still owns more than 100,000 shares of AMZN, worth over $181 million dollars.

To start with, the near term is growing a bit more uncertain for the e-commerce giant. A combination of increasing competition, slowing cloud sector growth, and a lack of successful new initiatives may hamper the company moving forward.

Amazon was the early adopter in the e-commerce realm, and so benefited from a wide-open playing field. These days, however, every retail company is developing an online presence, sometimes using Amazon as a platform, but sometimes challenging the giant. Walmart (WMT), especially, has been developing an online retail arm with the specific aim of challenging Amazon.

E-commerce, however, is not the only crowded sector. In the cloud computer sector, Amazon Web Services has been generating a large part of the parent company’s profit, but Microsoft (MSFT) 365 is backed by the resources of the world’s most valuable public company and AWS will have a hard time maintaining market share.

Finally, most of Amazon’s projects in recent years have turned out less profitable than the company would like to admit. The Whole Foods purchase, the online drug store, and the attempted move into health insurance all failed to bring the promised returns, while Amazon’s business in India is recording losses. The company is successful and profitable in its two core businesses, e-commerce and AWS, it’s not about to go under, but it’s having trouble gaining traction in other initiatives.

So, it may be fair to say that Millennium’s reduction in its Amazon holding was more of an adjustment – the hedge fund is hedging its bets.

The Street’s top analysts, however, still see AMZN as a stock to buy. Both Wolfe’s Scott Mushkin and Jefferies’ Brent Thill put a $2,300 price target on AMZN shares, suggesting a 26% upside potential. (To watch the analysts' track record, click here)

In his comments, Mushkin sums up the bullish case saying, “It is not out of character for AMZN to prioritize sales growth over profit when it has the opportunity to improve the customer experience. While the near-term profitability outlook is more subdued, we think it is reflective of the current investment cycle, and our long-term outlook for AMZN’s earnings power is largely unchanged.”

All in all, Wall Street’s confidence backing this tech giant is strong, with TipRanks analytics showcasing AMZN as a Strong Buy. Based on 31 analysts polled in the last 3 months, all 31 rate the stock a Buy. Meanwhile, the 12-month average price target stands at $2,284.31, marking a nearly 25% upside from where the stock is currently trading.